NIB Health Funds Ltd v Private Health Insurance Administration Council

the operation of the Fund 10 The rules governing the operation of the Fund are underpinned by a policy of community rating. The Fund does not provide reinsurance in the accepted sense of that term as used in connection with general or life insurance. It is not a fund against which claims can be made to cover the effects of losses or primary claims beyond certain contractually defined limits. Rather, it is a mechanism whereby all RHBOs settle claims and entitlements arising from their payments in respect of aged and chronically ill patients. If a particular RHBO pays out a higher amount to such patients than the relevant benchmark, it receives money from the Fund. If an RHBO pays out a lesser amount to such members than the relevant benchmark, it is obliged to pay money to the Fund. The RHBOs settle their obligations to, or receive payment from, the Fund at the same times during the year. The payments are like those in a clearing house in that the respective rights and obligations of the RHBOs from and to the Fund create a net zero sum calculation. The combined payments by the indebted RHBOs equal the combined entitlements of the RHBOs entitled to payment. By this mechanism an averaging out of the financial burden of the aged and the chronically ill across all RHBOs is achieved. 11 The benchmark is calculated by the Council from information provided by RHBOs. At the end of each quarter, the Council collects information from all RHBOs in a nominated format. From this information the Council calculates the average benefits paid for the aged and chronically ill (each such category being defined) by dividing the total amount paid to such patients by the number of members (calculated in a particular way). That average (by State) is the benchmark for each State. An RHBO will pay to, or be paid a sum from, the Fund being the difference between its calculated average (its payments to such patients divided by its members) and the State average, multiplied by its membership. 12 Thus, if an RHBO provides the Council with quarterly financial information which mistakenly overestimates what sums it has paid to such patients a number of things will follow: first, the State average of such payments will be too high; secondly, the average of the RHBO providing the false information will be too high; thirdly, the RHBO providing the false information will be better off than it should be - either receiving more, or paying less, than in fact it would have received or paid had correct information been provided; and, fourthly, the other RHBOs will be worse off - either receiving less or paying more.

how this dispute arose 13 The subject matter of the dispute here arises from the fact that in 1998 and 1999 the applicant wrongly and mistakenly told the Council an underidentification of how much it paid to its aged and chronically ill patients. The miscalculation in each year was somewhat over $10m, that is over $20m for the two years. It is unnecessary to be precise about identifying by how much overpayment was made by the applicant as a result of these errors. Neither party saw that precise calculation as relevant. It suffices to say that to make that precise calculation, calculations of the State averages and the applicant's averages would have to be revisited, but that the applicant would receive some millions of dollars back and that the other RHBOs would have to pay money back in amounts which in total equalled the payment to the applicant. 14 Upon discovering its errors the applicant sought a repayment from the Council. On 11 August 2000 the Council decided to refuse the applicant's request for a recalculation and repayment. It is that decision which is the subject of judicial review in these proceedings.

the facts - an outline 15 It is now necessary to set out in a little more detail the facts of this matter. 16 The applicant's business is predominantly carried on in New South Wales. It is the sixth largest RHBO in Australia and the fourth largest in New South Wales. As at 30 June 1998, 1999 and 2001 the applicant had 159,959, 165,263 and 228,262 members, respectively. Most of these members lived in New South Wales. 17 On 26 June 1998 the then Commissioner of the Council made a determination under subs 73BB(1) which required RHBOs to lodge data with the Council on membership and benefits paid, on a quarterly basis. The format of the form was called a PHIAC 1 return. The form of this return has varied over time as details of the operations of the Fund changed in accordance with Ministerial determinations made under s 73BC. 18 PHIAC 1 returns are lodged by the 28th day of the month following the end of the quarters ending 31 March, 30 June, 30 September and 31 December. The returns are signed by the public officer of the RHBO who must state that the information contained therein is true and correct. An independent auditor is required to provide an auditor's certificate in accordance with Australian Accounting Standards in respect of each year's returns. 19 The Council uses the information in the PHIAC 1 returns to calculate the reinsurance obligations and entitlements of the RHBOs. In another document, called a PHIAC B report, the Council sends to all RHBOs a copy of the information used for the reinsurance calculation. 20 In July 1998 all RHBOs were reminded by the Council of, amongst other things, the requirement for "reinsurance transactions" (which I take to be referring to payments to the aged and chronically ill) to be audited by external auditors for the four quarters to 30 June 1998. 21 Prior to then, in February 1998, the Council provided to all RHBOs a revised audit programme for use by their external auditors in relation to the audit of "reinsurance transactions". 22 As changes were made to health insurance arrangements in 1999, with consequential changes to the PHIAC 1 returns, the Council sent updated audit guidelines revised by PricewaterhouseCoopers to all RHBOs. As part of these changes the external auditors of the RHBOs became obliged to certify the accuracy of the information in each PHIAC 1 return. 23 This regime makes plain what is otherwise apparent as a matter of common sense, that the accuracy and reliability of the information provided by the RHBOs, upon which the net zero sum calculation is made between competing RHBOs, is an important matter for the smooth and businesslike operation and management of the Fund and for the efficient planning and running of the affairs of each RHBO. 24 The applicant filed PHIAC 1 returns for the nine quarters covering the periods 1 July 1997 to 30 June 1998, 1 July 1998 to 30 June 1999 and 1 July 1999 to 30 September 1999. 25 In relation to each of those quarters, the Council collated the information from the applicant and the 43 other RHBOs and made the relevant calculations leading to payments to or from all RHBOs. 26 In October 1999 the errors were discovered by the applicant. The history of how the errors came about is set out in some detail in the request for an adjustment delivered by the applicant to the Council on 6 July 2000. What follows is taken from that document. Some elements of what follows may well be the subject of some disagreement as between the applicant and the Council, in particular as to matters of fault. It is unnecessary to descend to the detail or merits of such disagreement. It is appropriate however, in the light of the issues and submissions of the parties, to have an understanding of the applicant's explanation of the problem. 27 In mid-1997 the applicant was required to write programme changes for its in-house computer software. In 1998, while conducting its 1998 audit of the applicant's PHIAC 1 returns, the auditors detected a discrepancy between the reinsurance benefits on the returns and those calculated by the auditors on their computer programme. Discussion took place between the auditors and officers of the applicant. It was thought that the lesser amount of claims in the PHIAC 1 returns had been brought about by a decline in membership. After some investigation, the auditors and the chief financial officer of the applicant concluded that the level of reinsurance benefits in the returns (which had declined from the previous year) was explained by the applicant's membership profile. It was concluded that the figures were "reasonable". 28 In conducting the 1999 audit, a similar discrepancy was found. By the time of the audit certificate in late September 1999, a similar conclusion was reached about the level of the reinsurance benefits paid. Indeed, a review in late September by the auditors and the chief financial officer led to the conclusion that the level of claims was consistent with industry figures and the previous year (1998) and that the 1999 PHIAC 1 returns (for the four quarters ending 30 June 1999) were "reasonable". 29 A further investigation was made in October 1999. This revealed an error in the software programme which was made at the time of the programme changes in June 1997. This error had led to certain reinsurance benefits which had been paid not being identified as such. 30 By way of explanation, the applicant claimed that, to a degree, shortness of time allowed by the Council in implementing the changes in 1997 may have contributed to the error being made. 31 The understatement of the reinsurance claims was $10,006,046 for the 1998 year and $10,887,165 for the 1999 year. There was also an understatement for the quarter ended 30 September 1999. An adjustment has been made in respect of this last-mentioned error and this matter was not the subject of the impugned decision made on 11 August 2000. 32 In early November 1999 the managing director of the applicant, Mr Colin Rogers, spoke to the Council's CEO, Mrs Ginnane, and told her of the errors and sought a meeting as a matter of urgency. That meeting took place on 11 November. At the meeting, Mr Rogers was told of the need for, and the required content of, an application for adjustment. A short letter from the auditors was provided to Mrs Ginnane at the meeting explaining that the computer programme had not extracted all reinsurance benefits paid. 33 Later in November 1999, the applicant advised the Council of the amounts involved. Mrs Ginnane indicated the need for a different auditor to certify the submission for adjustment. 34 In mid-December 1999 the Council wrote to all RHBOs in the following terms: PHIAC has been advised by NIB Health Fund that it has understated reinsurance benefits on their PHIAC 1 returns by $10,006,046 for the year ended 30 June 1998 and $10,887,165 for the year ended 30 June 1999. NIB has been informed that the PHIAC Council will need to make a decision regarding any adjustments. The registered organisation will need to make a submission in respect of a request for adjustment to PHIAC in terms of the Minister's Determination dated 30 September 1999. This information is brought to your attention on the basis that, if the Council should accept NIB's request for adjustment to reinsurance, it could impinge on the financial position of other organisations. 35 On 31 January 2000, the applicant provided a submission to the Council. It consisted of a five page letter signed by Mr Rogers, the managing director of the applicant, a fourteen page document entitled "Report on Underclaim of Reinsurance Claims" and certificates from different auditors in relation to adjusted PHIAC 1 returns for the eight quarters in the years ending 30 June 1998 and 30 June 1999. 36 There is no issue but that these adjusted PHIAC 1 returns are correct. 37 The five page letter signed by Mr Rogers reflected legal advice said to have been taken. It is unnecessary to examine the terms of the submission in any detail, save to note the following matters. First, the applicant sought to explain the computer error in a way partially exculpatory of itself, by stating the following: 2. The cause of the software error leading to the understatements of NIB's reinsurance claims in the 1998 and 1999 returns was not entirely of NIB's making. A material contributing cause of the error was the very limited time allowed in connection with the new PHIAC 1 form to be submitted by RHBOs from the September 1997 quarter, and PHIAC's requirement that the information be provided in the modified form. PHIAC's notice in relation to the new return was dated 2 June 1997, applicable 1 July 1997. NIB changed its software program in response to PHIAC's notice to include data that was not relevant to the procedure for making payments in to the Fund. Implementing the changes to NIB's software and the software error occurred within the same timeframe. This submission is not intended to be an exercise in attributing blame, but merely to give some explanation for what must be an error of unprecedented proportion never envisaged by whatever legislative scheme might be applicable. 3. PHIAC was nevertheless in a better position than NIB to realise that NIB was significantly understating its reinsurance claims in the 1998 and 1999 returns insofar as PHIAC could compare the information in NIB's returns with information in other RHBOs' returns. 38 Secondly, the applicant emphasised that its strict legal position "under the general law" was that it was entitled to be repaid sums overpaid as a result of a mistake. That position was set out in seven paragraphs on the fourth and fifth pages of Mr Rogers' letter, the seventh paragraph of which stated: By reason of the foregoing legal considerations, it becomes unnecessary to address the "exceptional circumstances" provisions of the 1999 Determination. 39 The reference to "exceptional circumstances" in this paragraph was to one aspect of the operation of the Fund under the then prevailing principles determined by the Minister. Under the Health Benefits Reinsurance (Trust Fund Principles) Determination 1998 and the Health Benefits Reinsurance (Trust Fund Principles) Amendment Determination 1999 (No1) the Council was able to calculate (or recalculate) the reinsurance obligations and entitlements after the expiry of a defined time period (which here applied) only if "exceptional circumstances" applied. The phrase was given content by the second of the determinations just mentioned. 40 What the applicant was saying in the submission was that it was entitled to refund (by payment or deferred credit) of the overpayment as a matter of general law and that it was unnecessary to address the issue of exceptional circumstances which was thrown up by the abovementioned Ministerial Determination. 41 I should add at this point that the Fund, when constituted, had placed in it a nominal sum to allow the operation of a bank account. Once moneys were and are received from RHBOs pursuant to the reinsurance calculations they were and are paid out at about the same time. So, the overpayments made by the applicant in 1998 and 1999 were not retained by the Council, but were in effect paid out to other RHBOs entitled to payment in the zero sum operation of each quarterly calculation. 42 Mrs Ginnane, the CEO of the Council, considered the applicant's submission. The submission was included in the board papers for a meeting of the Council on 14 April 2000. Also within the board papers for that meeting was a draft letter to the applicant prepared by Mrs Ginnane. The draft letter was in substantially identical form to that sent by the Council to the applicant after the meeting. At the meeting the Council resolved: · Not to accept NIB's argument for adjustment as made in its current submission; but · To provide NIB with an opportunity to put an argument of "exceptional circumstances" to the Board. 43 The draft letter of Mrs Ginnane presented to the Council and the letter sent to the applicant both contained the following: … On 14 April 2000 the Council declined to consider whether to make a determination for an adjustment payment in accordance with the Health Benefits Reinsurance (Trust Fund Principles) Amendment Determination 1998 ("the Determination") in respect of NIB. … 3.1 Your letter to PHIAC dated 28 January 2000 does not base the claim for recognition of overpayment on the "exceptional circumstances" adjustment provisions of the Determination as amended in 1999. Rather, NIB's claim is put on the basis that the overpayment is recoverable under the general law as being paid by mistake. It is asserted that the Determination cannot validly override this position at law and that, in any case, it does not purport to do so. 3.2 PHIAC rejects this interpretation. The intention of s.73BC of the National Health Act 1953 ("the Act") is to displace the general law and provide through the Determination the only circumstances in which a payment may be made out of the fund. … 3.5 NIB is entitled to make a submission that circumstances exist that bring it within the operation of the Determination such as to entitle it to a payment out of the reinsurance fund in respect of the 1998 and 1999 financial years. 3.6 However, as NIB has not placed before the Council arguments in support of a case that would justify the exercise of the Council's discretion under the Determination to make a payment out of the fund, PHIAC has not considered whether NIB is entitled to such a payment out of the Fund. … 44 At this meeting of 14 April 2000 the board requested a report from Mrs Ginnane. The minutes record the following: Mrs Ginnane briefed the Board on the NIB Reinsurance submission. In the discussion of the issues, the Board asked that management conduct an internal review of NIB's operations and performance, addressing the attributes required of a well run fund, and provide the Board with a qualitative and quantitative analysis at the next Board meeting. 45 The next meeting of the Council was on 5 May 2000. No further submission or application had as yet been received from the applicant. On 5 May 2000 Mrs Ginnane "tabled [her] draft management report, entitled 'Draft NIB Management Review Report' and spoke to it." (See the affidavit of Mrs Ginnane 9 April 2001 para 116.) Neither the existence nor content of this document was made known to the applicant prior to the commencement of these proceedings. That state of affairs provides the factual foundation for one of the main arguments of the applicant to the effect that it was denied natural justice or procedural fairness in the making of the decision later, on 11 August 2000. For that reason the contents of that draft report should be described in some detail. I will refer to it hereafter as the Draft Management Report. 46 The Draft Management Report commenced with the following paragraph: Background The Board asked for a review of NIB's Management at the Board meeting of 14 April 2000. This assessment provides some background on the fund and a view of the management based on the information presented to PHIAC as part of the submission regarding the reinsurance error and other matters over the last four years. 47 Financial and other information was then provided about the applicant. Next, under the heading "Standard of Reporting", the following appeared: Generally NIB's reporting has been good. The fund lodges its returns on time although the accuracy of the reinsurance returns (PHIAC 1) we now know to have been inaccurate for the two years up to 30 June 1999. Financial reporting has been of an appropriate quality. NIB has not been meeting the HIC's reporting requirements on HPPA's and MPPA's until recently. The reinsurance error at the heart of this issue was detected by audit. However NIB, according to their report, decided that the audit program was wrong. It would appear to be a fundamental reporting problem that this issue was never raised with PHIAC. It is of concern that a fund could write off an audit program without even discussing it with the sponsor. 48 Then, under the heading "IT Systems", four paragraphs appeared which dealt with this computer error and other aspects of the applicant's "IT Systems" and other examples of "IT problems". 49 Then, under the headings "Internal Audit" and "External Audit" the following appeared: Internal Audit There is no evidence of an internal audit program either in the report on reinsurance or in any other material. The reinsurance error that occurred was explained away by an internal review. There does not appear to be an ongoing review and checking process and this is confirmed from other information. External Audit Forsythe's of Newcastle has done the external audit for some years. During the meeting with NIB when this error was first brought to PHIAC's notice and during the visits in relation to the new standards, it was clear that the auditor is very closely involved with the Board and management. It may be that this relationship is too close and NIB would benefit by a change in auditor, if only to provide a genuine arms length review of the organization. It was for these reasons that PHIAC required the audit in relation to this error be done by another company. 50 Then, under the heading "Reinsurance", comments were made both of a general nature and in relation to the recently reported calculation problem. The following was stated: The reinsurance reporting was incorrect from July 1997 until December Quarter 1999 when the September Quarter 1999 was corrected and NIB sought an adjustment in relation to the years 1997/98 and 1998/99. PHIAC was provided with unqualified audit certificates for those years, although we now know that the auditors detected the error and NIB senior management discounted it. NIB has also been prominent in complaining about the unfairness of the reinsurance system and active in encouraging acceptance of the Risk Based Capitation system because it would have improved their position in relation to other funds. The risk based capitation model is however flawed by the NIB error, which is sufficiently large to make the model wrong. I think it is reasonable to assert that NIB lacks understanding of the principles behind the reinsurance system, despite the fact that it is a fundamental factor in running any health insurance business. The fact that the error was explained away without apparent resort to any other checking mechanism is an indicator of that lack of understanding. 51 Next, under the heading "Lack of Planning", comments were made clearly dealing with the recently reported calculations problem: The change in PHIAC reporting which required a programming change for NIB, resulting in the reinsurance error, was not a last minute change. It related to the introduction of two new categories of membership, single parent families and couples. The Minister announced the changes in late 1996 and PHIAC produced a Circular (No 62 of 4 December 1996) informing funds that there would be new reporting requirements relating to the extra membership categories. Funds were going to need to change their IT systems to deal with the new categories even if they did not sell such types of products. PHIAC then provided a detailed circular listing the changes on 30 May 1997 with the changes to take effect with the September Quarter reporting. In effect NIB had 6 months to plan the system change which all other funds managed successfully. 52 It was in that context of over three pages of discussions of the operations of the applicant intertwined with a discussion of how the recently reported error arose and responsibility for this that Mrs Ginnane stated the following about her views of the applicant under the headings, "NIB Board" and "Board and Management - Summary": NIB Board I have not met the full Board of NIB but have had a number of meetings involving Board members, most recently during the visit to explain the solvency and capital adequacy standards. My observation is that the Managing Director is very dominant in relation to the Board and generally, the Board as a whole tends to defer to him. I would suspect that corporate governance is somewhat lacking and certainly, given this issue of reinsurance, there does not appear to have been any major action taken internally by the Board in relation to an error of $21 million to hold anyone accountable for that error. The Board, at 30 June 1999 comprised of the following:- · John Moore - Company Chairman since 24 March 1986, Director since 1970 (ASA, ACIS, Investment Adviser, Morgan Stockbroking Ltd) · Ronald G Hooker - Director since 1972 (Retired) · Colin Rogers - Managing Director, Director since 1990 (FCPA , ACIS, ACIM) · John Graham - Director since 1977 (Consultant) · John Larkin - Director since 1992 (Company Director) · Grahame Cannon - Director since 1998 (Investor) The organisation has Investment, Remuneration and Audit sub-committees. Board and Management - Summary I think there is sufficient evidence to suggest that NIB's Board and Management lacks understanding of key components of the industry in which they are operating. NIB's management: · lacks a fundamental understanding of reinsurance which is a major factor in private health insurance · does not plan adequately · lacks an internal audit system · needs to change its external auditor · had IT system problems which were significant, at least until recently · is not fully accountable for their errors. The NIB Board does not obviously have a corporate governance system in place and are perhaps too close to the managing director and do not exert sufficient independent influence to ensure that members' interests remain paramount. 53 The minutes of the Council meeting of 5 May 2000 record the following under the heading "NIB Management Review": Mrs Ginnane advised the Board on the background to the NIB Health Fund and on PHIAC's view of the management of the Fund based on information presented to PHIAC as part of NIB's submission on its recent reinsurance error and other matters over recent years. The Board considered Mrs Ginnane's report. The Board requested that the management seek appropriate assurance from NIB that the difficulties that lead to the reinsurance error had been fully addressed and that there were now in place such governance and systems procedures, including adequate audit arrangements, to ensure similar errors would not re-occur. A suitable draft letter to NIB is to be prepared by PHIAC's lawyers and be available for consideration at the next Board meeting. 54 I leave to one side for the moment the explanations of the respondent Council and Mrs Ginnane for the fact that the applicant was not informed of the existence and content of this document and of the views of Mrs Ginnane contained within it. It is sufficient at this point to note that in her second affidavit of 12 June 2001 Mrs Ginnane, in discussing the Council meeting of 14 April, referred to two "issues" - the first being the request for an adjustment and the second being "the source and cause of the NIB error". Mrs Ginnane said in this affidavit (para 8): … The Council was concerned as to how an error of such magnitude could occur and remain undetected for an extended period of time by NIB. Council requested this review result in a qualitative and quantitative analysis report of NIB operations and also that the report should address the attributes one would expect of an efficient and effective organization. Council requested the report to be presented at the next Council Meeting. 55 It should also be noted that Mrs Ginnane said in her affidavit of 9 April 2001 (para 118) that the report requested on 14 April 2000, being it was said "an assessment of the management of NIB", was not completed by 5 May 2000 and was "never completed", "instead" the document referred to in [45] to [52] above was tabled. What the Council called for at the meeting of 14 April 2000 was recorded in the minutes and is set out in [44] above. 56 The next Council meeting was held on 9 June 2000. Mrs Ginnane said in her affidavit of 9 April 2001 that she briefed the Council on "NIB reinsurance issues". The Council expressed a concern wider than merely the applicant's position and problems. The minutes of the meeting record the following under the heading "NIB Reinsurance Update": Mrs Ginnane briefed the Board on the NIB reinsurance issue. She circulated a letter, dated 1 June 00, from NIB's lawyers advising that they had been delayed in their preparation of NIB's claim and that they expected the material to be lodged in time for PHIAC's consideration in July 00. The Board believed that the matter raised a number of general issues that not only involve NIB but also 3 or 4 other funds for which reinsurance adjustments have been of concern. In the circumstances, a thorough review of the reinsurance audit and certification process across the industry is considered necessary. Accordingly, the Board asked that management undertake a general review of the reinsurance audit and certification process. Essentially, the Board wants to be satisfied that all funds are aware of their obligations under reinsurance, that Fund Boards sign-off on the accuracy of their reinsurance audits, and that the overall industry process is sufficiently robust to ensure the future integrity of the reinsurance arrangements. 57 In late June 2000 solicitors for the applicant informed Mrs Ginnane of the advanced state of preparation of a submission for an adjustment and the applicant's intention to have this submission available before the Council's next board meeting on 14 July 2000. It also sought confirmation (which shortly thereafter was given) that the relevant principles governing the Council's consideration of the matter were no longer those referred to in the Ministerial Determinations mentioned in [39] above and which threw up the notion of "exceptional circumstances", but those contained in the Ministerial Determination of 3 May 2000. The changes had been made by the Health Benefits Reinsurance (Trust Fund Principles) Amendment Determination 2000 (No 1). That Determination included Part 3A, entitled "Adjusting Calculations". Section 3A.1 of the Determination provided: 3A.1 Calculation of appropriate payment may be adjusted (1) If, after a calculation (the primary calculation) is made under section 2.6 or 3.3, the Council receives information (new information) on a matter mentioned in subsection 2.2(1) that, if received earlier, would have affected the result of that calculation, the Council may make a further calculation taking account of the new information. (2) Unless subsection (3) applies, a further calculation may be made only if the new information is received by the Council: (a) during the financial year in which the particular quarter concerned occurs; or (b) within the period provided under subsection 82L(2) of the Act for the giving of the report, described in that subsection, that relates to the particular quarter concerned. (3) A further calculation may be made as a result of new information received later than is allowed under subsection (2) if the Council is satisfied that: (a) the new information demonstrates that, in preparing its report in respect of information that the Council is required to acquire under subsection 82G(1) of the Act, the registered organisation made a significant error; and (b) it is in the best interests of registered organisations generally, and good administration of the Fund, that a further calculation be made. [emphasis added] 58 Thus, it was agreed in 2000 between the applicant and the Council, subject to the argument based on restitutionary principles at general law, and it was common ground before me, that the decision of the Council as to a readjustment was one found in paras 3A.1(3) referred to in [57] above. Further, given that there was no debate about whether there was a "significant error" for paragraph 3A.1(3)(a), the real question for the Council was whether it was in the best interests of "registered organisations generally" and "the good administration of the Fund" that a further calculation be made for paragraph 3A.1(3)(b). 59 As I have earlier explained, a readjustment of a calculation previously made potentially affected all RHBOs and not merely the RHBO which made the mistake leading to the readjustment. If such a readjustment were made it could (as here) give rise to a not insignificant liability upon other RHBOs to make further payments to the Fund. Also, the operation of the Fund itself might be disturbed by the need for large payments otherwise than in the course of a quarterly settling of accounts in the regular zero sum calculation. For these reasons the Determination operative after May 2000 provided for staggered payments. This was set out in sections 3A.2 and 3A.3 of the principles which contained the following provisions: 3A.2 Determination of adjustment payments If a further calculation made under section 3A.1 shows that a payment made under subsection 73BC(6) or (12) was not appropriate the Council may determine: (a) under subsection 37BC(6) - that an adjusting amount is an appropriate payment in relation to the registered organisation concerned; or (b) under subsection 73BC(12) - that an adjusting amount is to be paid to the registered organisation concerned. 3A.3 Application of adjustment payments (1) In general a determination under section 3A.2 takes effect in the first reinsurance settlement period for the registered organisation concerned that follows the making of the determination: (a) if subsection 73BC(6) applies - as an appropriate payment in relation to that organisation; or (b) if subsection 73BC(12) applies - as an amount to be paid to that organisation. (2) However, if the Council is satisfied that the financial stability of the registered organisation, or the Fund, would be unreasonably affected by the application of subsection (1), the determination takes effect as payments (proportional, or as otherwise decided by the Council) in: (a) the reinsurance settlement period mentioned in that subsection; and (b) as many subsequent reinsurance settlement periods as the Council determines to be reasonable. [emphasis added] 60 The phrase "unreasonably affected" used in subs 3A.3(2) was defined in section 3A.3 to mean: (a) in the case of an organisation having to pay an adjusting amount subsection 73BC(6) of the Act - that the amount of the payment is so large that, in the opinion of the Council, the financial stability of the organisation would be at risk; or (b) in the case of a payment having to be made under subsection 73BC(12) of the Act - that the amount of the payment would be greater than 1% of the amount, at the time the determination is made, of the State or Territory pool of the Fund from which the payment is to be drawn. [emphasis added] 61 On 6 July 2000, by email, and on 7 July 2000, by hand, the applicant delivered to the Council a request for further calculations and determination of adjustment payments. The request was in the form of an eight page letter signed by Mr Colin Rogers, the managing director of the applicant and an enclosed sixteen page report. 62 The request was for a recalculation and adjustment under the Ministerial Determination. However, the request was expressed to be "without prejudice to NIB's legal rights in respect of PHIAC's decision and reasons as set out in your letter dated 19 April 2000, in respect of NIB's previous submission." In other words, the applicant was maintaining its claim to its legal right of repayment under the general law based on its mistake in overpaying. 63 I will return to an examination of the contents of the request when I deal with the contention by the applicant that the respondent Council's reasons display, when compared with the content of the request, a failure to accord the applicant procedural fairness, (see [132] et seq below). 64 One further matter should be noted at this point. The request stated, on page 2 of Mr Rogers' letter, the following about the basis of the request: I should record at the outset, NIB's position that the amendments gazetted on 3 May 2000 are applicable to these requests. NIB's position accords with the obiter views expressed by Justice Goldberg in paragraph 23 of his reasons for judgement [sic] in Australian Unity Health Ltd v PHIAC [2000] FCA 799. It also appears to be the current view of PHIAC, as reflected in the terms of your letter dated 29 June 2000 to our Solicitor, Mr Paul Anicich at Sparke Helmore. Since the issue does not appear to be in dispute, NIB has not developed its position on that issue here. If, contrary to NIB's understanding, PHIAC is inclined to take a different view on the relevance of the latest amendments to NIB's requests, NIB would wish to be heard on the matter prior to PHIAC finalising its position on those requests. ... 65 The request was not dealt with at the next meeting of the Council on 14 July 2000, there being insufficient time to consider it. The minutes of this meeting record that the board asked that the Council's legal advisers be requested to attend the next meeting to brief the board on the applicant's request. 66 Prior to the next board meeting on 11 August 2000, Mrs Ginnane considered the request and met with the Council's solicitors, Phillips Fox. She came to the view that the request should be rejected. She prepared, in consultation with solicitors from Phillips Fox, three documents of some importance. The first was a board briefing paper of a little over one page which contained a recommendation that the applicant's request be rejected, that the enclosed draft reasons be provided by way of explanation for that decision and that the Council should write to the Chairman of the applicant seeking assurances to prevent a re-occurrence of the problem. The second was a short draft letter informing the applicant of the decision. The third was a document of a little over nine close typed pages of draft reasons for the decision. 67 The briefing paper was entitled "NIB Reinsurance" and contained the following: Recommendation: That the Board should not make an adjustment for NIB, That the attached statement of reasons be provided to NIB in explanation of PHIAC's decision, and That PHIAC should write to the Chairman of NIB seeking assurances that the appropriate systems have been put in place to prevent a re-occurrence. Background The Board is aware that NIB wrote to PHIAC on July 6 requesting that PHIAC use its discretion to make an adjustment in relation to an error reported by NIB for the years ended 30 June 1998 and 30 June 1999. A copy of the request is attached at pages 118-133 for reference. PHIAC has considered NIB's request carefully however on balance the arguments presented by NIB are outweighed by: · The precedent which could be caused by allowing an adjustment after the period considered by the Minister's determination and the signal that would send to the industry, · While the source of error for NIB is different from the current Federal Court case involving four funds, PHIAC is maintaining its consistency in acting in accordance with the Minister's Determination · Good governance of other funds who have acted appropriately in providing correct data · Funds which have managed their affairs and budgeted for contribution rates in good faith on the reported reinsurance outcomes. A draft Statement of Reasons for PHIAC's decision is attached at pages 134-144. … Earlier this year the Board considered that PHIAC should write to NIB seeking an assurance that NIB had put in place the appropriate mechanisms such as internal audit to minimise the likelihood of future error. This letter should now be drafted and sent to the Chairman of the Board. It may be appropriate to suggest that NIB seek a new auditor in the light of information provided in NIB's report that the auditor discovered the error and accepted NIB's explanation without any qualification to the audit report. 68 The draft decision was substantially identical, with only minor exception, to the decision and reasons sent to the applicant under cover of letter dated 11 August 2000. Section 1 of the decision set out the statutory and factual background as well as the essential findings. The latter included findings that the applicant made a significant error for the purposes of para 3A.1(3)(a) of the relevant Determination (see [57] above) and that the Council was not satisfied "that it is in the best interests of registered organisations generally, and good administration of the Fund, as required by para 3A.1(3)(b), that a further calculation be made." 69 Section 2 of the decision then listed 23 documents being "evidence or other material on which findings were based." These did not include the Draft Management Report. 70 Section 3 of the decision was entitled "Reasons for the Decision". The first subsection of section 3, section 3.1, dealt with the effect of Part 3A and was as follows: 3.1.1 Part 3A of the Determination as inserted by Amending Determination No.1 of 2000 is the legislation applicable to the calculation of any adjustment of the amount payable in to the Fund by NIB. Support for this view is to be obtained from the decision of Goldberg J in Australian Unity Health Ltd v PHIAC, Federal Court of Australia, 8 June 2000. 3.1.2 The new information provided by NIB was not received by PHIAC within the period referred to in section 3A.1(2). Accordingly, if a further calculation is to be undertaken, PHIAC must be satisfied of the matters referred to in section 3A.1(3). 3.1.3 Having regard to the amount that NIB understated in reinsurance claims for the 1998 and 1999 financial years and the effect on NIB's financial affairs and contributors of the payment by NIB to the Fund in 1998 and 1999 as a result of that error, PHIAC is satisfied that NIB made a significant error as referred to in paragraph 3A.1(3)(b). 3.1.4 PHIAC notes that there are two requirements specified in section 3A.2(3)(b) in relation to which it must be satisfied while they may be thought to be interrelated, PHIAC must nonetheless be satisfied that undertaking a further calculation is in the best interests both of registered organisations generally and the good administration of the Fund. 71 Section 3.2 of the reasons paraphrased and summarised the applicant's arguments. 72 Section 3.3 of the draft reasons, and the reasons sent to the applicant, are different in one minor respect. Given the importance of the reasons I set out in full section 3.3 of the reasons sent to the applicant. The sentence in bold in para 3.3.12 below is in the reasons as sent, but not the draft reasons. 3.3 PHIAC's Conclusion 3.3.1 PHIAC has paid careful attention to and considered the comprehensive arguments put by NIB in support of this claim. However PHIAC has rejected the claim because those arguments do not take into account the following matters which, in PHIAC's view outweigh the arguments advanced by NIB. 3.3.2 PHIAC notes that the Determination was amended on 18 April 2000 by the deletion of the requirement that a RHBO has to establish "exceptional circumstances" before its contribution to the Fund in relation to a previous year could be recalculated. The more general requirement now specified is first that the RHBO demonstrate that it made a significant error. 3.3.3 As indicated previously, the nature of NIB's miscalculation was of such size and had such an impact on NIB and its members that it could properly be described as "significant". 3.3.4 Secondly, the amended Determination requires PHIAC to conclude that the best interests of registered organisations generally and good administration of the Fund require a further calculation. No factors are set out in the Determination to guide PHIAC in reaching a conclusion on these matters. PHIAC has accordingly had regard to its understanding of the purpose of the Act and the Determination in relation to the Fund and the interests of RHBOs. It has also drawn upon its experience in administering the Fund and the knowledge that it has acquired in carrying out its statutory functions of the management practices of RHBOs generally. 3.3.5 These factors have persuaded PHIAC to follow the general policy that certainty is an essential element of good administration of the Fund. This will not be the sole determinant of Fund administration. PHIAC recognises that Part 3A of the Determination permits recalculation of amounts payable into and out of the Fund. However, the Fund cannot be managed in the best interests of RHBOs generally if the calculations of payments into and out of it have to be frequently revisited. 3.3.6 PHIAC is also of the view that primary responsibility for the representation of accurate information relating to contributions to the Fund rests with individual RHBOs. In making its calculations relating to the fund, PHIAC depends upon accurate information from RHBOs. It is not in a position to obtain the requisite information except from the individual RHBOs. It will also often not be in a position to check that information. For that reason, PHIAC seeks certification of the accuracy of the information by the public officer and requires that an annual audit be done attesting to the accuracy of the information provided to PHIAC. NIB's submission notes that the error was detected by the auditor. However, the audit report provided to PHIAC was unqualified. 3.3.7 PHIAC considers that the proper functioning of the reinsurance scheme is dependent upon acceptance by RHBOs of mutual obligations to put in place systems that ensure that the information first supplied to PHIAC is correct. The need for recalculation of all RHBO's contributions as a result of one RHBO getting its figures wrong must be kept to a minimum. 3.3.8 For the best interests of both RHBOs generally and the good administration of the Fund to be served, it is appropriate that RHBOs be able to plan their affairs and not be required to repay money to the Fund in every case where another RHBO has made a mistake in an earlier year. Organisations which manage their affairs and increase their rates once per year budget on known information. If adjustments have to be made it is possible that those organisations may need to bring forward rate increases. This would disaffect their members and not be in the interests of those organisations or the industry as a whole. 3.3.9 The best interests of the RHBOs generally should take into account not only the effect of not making an adjustment calculation on a particular RHBO, but also the effect on all other RHBOs who have planned their affairs on the basis of calculations and adjustments of the Fund previously made. The recalculation of the quantum of the Fund requires a consequent adjustment for allother RHBOs. [emphasis in original] 3.3.10 Applying these principles to the present circumstances, adherence to NIB's request would require the recalculation of the deficit of the Fund in the years 1998 and 1999. The contributions of RHBOs to the Fund commencing with the September quarter 2000 would then have to be adjusted to take account of the payment from the Fund of the amounts foregone by NIB in 1998 and 1999 as a result of its errors. 3.3.11 In determining whether to adhere to NIB's request, PHIAC notes that the obligation to contribute to recompensing NIB for its error will fall on current members of RHBOs. This will include members who have joined a RHBO since 1999, including the new lifetime health cover members. Similarly, calculations for the purpose of the Fund are affected by market share. This has changed for RHBOs since 1998 and 1999. 3.3.12 PHIAC is aware that this is a necessary consequence of the operation of section 3A.1 of the Determination and it does not say that further calculations can never occur. But it considers that the impact on other RHBOs is a relevant factor in determining what is in the best interests of RHBOs generally and in this context the size of the NIB claim is a relevant factor. The liability will appear immediately on the balance sheets of all other RHBOs and will affect their capacity to comply with present solvency and capital adequacy requirements under the Act. 3.3.13 While it is possible for an adjustment of the Fund to be implemented over a period of time, this has primary relevance to the prevention of an RHBO being drastically affected by having to meet an immediate payment which it is unable to fund. However, in PHIAC's view it is at the very least possible that some RHBO's will not be able to manage a readjustment of their contribution to the Fund without a breach of either the current standards or the proposed solvency and adequacy standards even though an extended adjustment period is set. Many RHBO's would be able to absorb such an adjustment but it cannot be ruled out that some RHBO's when faced with an adjustment payment will not be able to meet the capital adequacy requirements. This will particularly be the case with smaller funds. Some RHBOs may be obliged to increase members' contributions to meet the adjustment. In these cases this could affect membership numbers in such a way that they may cease to be viable. In short, it is PHIAC's opinion, based on its experience of the industry, that an extended settlement period may not be sufficient to avoid difficulties for other RHBOs that would be affected by recalculation of Fund contributions. 3.3.14 More generally, RHBOs need to plan their affairs over a number of years against a background of the amounts that they have either to pay into, or receive from, the Fund. For those amounts to be changed even on a graduated basis in respect of years that can be effectively thought to have been closed off does not enable or encourage efficient and effective planning by RHBOs. 3.3.15 Assuming the interests of the applicant RHBO are relevant to the factors set out in paragraph 3A.1(3)(b) of the Determination, regard must be had to all the circumstances on which the RHBO relies. In this case, NIB was alerted by its auditors in 1998 to the fact that there was possibly a deficiency in its returns for 1998. The warning was repeated for the 1999 return. NIB had the opportunity to undertake further investigations to ascertain whether there was a problem but it did not advise PHIAC of its awareness of the issue until 11 November 2000. 3.3.16 The reasons given by NIB for not taking sufficient steps to identify the existence of an error and rectify it have been set out in NIB's submissions to PHIAC. Regard has been paid to this submission in reaching the conclusion that NIB's circumstances are insufficient to justify a further calculation. PHIAC notes and comments particularly on the following: · NIB has claimed the error occurred at a time when NIB was reducing its staff numbers and restructuring its Information Services Department. NIB's choice of deployment of its resources cannot provide a reason for difficulties in meeting statutory obligations. · NIB says that declining membership provided an explanation for the apparent drops in reinsurance claims. There was, however, no drop in total claims by members. Declining membership also does not provide an explanation when regard is paid to general industry experience because reinsurance claimants do not give up membership of RHBOs. It is the young and healthy who first resign membership of a RHBO as they make fewer claims. The old and ill tend to retain membership as they make claims for benefits. NIB should have been aware of these factors and investigated further the drop in reinsurance claims. · NIB asserts that it was disadvantaged because PHIAC required changes to PHIAC returns and gave short notice of this requirement. RHBOs were given advance notice of the change to be implemented with effect from the September quarter, 1997, by Circular No. 62 dated 4 December 1996. No RHBOs, including NIB, reported any difficulties to PHIAC in meeting the deadline set. 3.3.17 PHIAC has taken into account all the other circumstances advanced by NIB to explain its error, (although it does not consider that all those circumstances were beyond NIB's control). 3.3.18 However, whatever weight is given to NIB's circumstances, it is not sufficient to persuade PHIAC that the best interests of organisations generally and good administration of the Fund indicate that a further calculation pursuant to paragraph 3A.1(3) of the Determination should be made. 73 On 11 August 2000, Mrs Ginnane wrote to the applicant telling it of the Council's decision and enclosing a copy of the decision and reasons. 74 On 14 August 2000, Mrs Ginnane sent a letter addressed to the chairman of the applicant, Mr John Moore, in the following terms: I am writing to seek advice from the Board of NIB on the action that it has taken to ensure that the error that occurred in relation to the reporting of reinsurance data has been addressed. In particular the Council, as the prudential regulator of the industry, seeks an assurance that: · NIB has reviewed its processes to ensure that data is correctly processed and reported, · that there are effective internal review or audit processes to give assurance on the quality of the data, · there is an appropriate management reporting mechanism to the Board of NIB, · there are appropriate external audit arrangements including consideration of the possibility of rotation of auditors, and · there is appropriate corporate governance with NIB and the Board to deal with accountability for such errors. In addition PHIAC seeks an assurance that the appropriate arrangements will remain in place on an ongoing basis. Any such error as you have reported could have significant effects both on your fund as well as other organizations. Council is therefore of the view that it is necessary and appropriate to assure itself that the problems leading to this error have been addressed and will not re-occur. 75 The applicant responded to the letter of 14 August 2000 by letter signed by Mr Moore in the following terms: Further to my letter of 22 August, in acknowledgement of yours of 14 August, I confirm your letter has been considered by the Board at the last Board meeting. Whilst I am conscious of the role of PHIAC in relation to Funds, because litigation in the Federal Court relating to the matters raised in your letter, is underway, the Board decided to seek legal advice before responding. Our advice is to the effect that because the matters raised in your letter are so integral to the litigation underway in the Federal Court, my response should be limited to confirmation that your letter of 14 August was tabled and considered at the last meeting of Directors, the matters raised by PHIAC were considered by Directors and the Board is confident due attention has been given to each of the matters raised. Further, the Board having given such attention to the matters raised, I can assure you the Board will continue to review such matters on an ongoing basis.

the issues 76 It will be necessary to return to certain factual matters and to deal with the evidence in a little more detail. I will set out and deal with the issues raised and, where necessary, deal with any further factual matters in their proper legal context. alleged denial of procedural fairness: para 5(1)(a) of the AD(JR) Act 77 A number of matters were raised under the rubric of lack of procedural fairness. The first matter was the failure to disclose to the applicant the views adverse to the applicant and contained in the Draft Management Report. 78 The second was the taking into account by the Council of its experience in the industry in concluding that making of the further calculation would adversely affect the capacity of other RHBOs to comply with solvency and other requirements of the NH Act, without disclosing those matters to the applicant and providing it with a reasonable opportunity to comment on such matters before a decision was made. 79 The third, related to the second, was the reliance by the Council on its own experience in the industry in relation to assessing the matters referred to in [78] above, instead of making "appropriate enquiries" of other RHBOs "as required by law" in order to ascertain the impact on them of making a further calculation. 80 The fourth, related to the third, was the allegation that there was no probative evidence or other material (reliance being made only on the Council's experience in the industry) to support various conclusions concerning the impact upon other RHBOs, those specific conclusions being identified as: i. the making of the further calculation sought by NIB would adversely affect the capacity of other RHBOs to comply with present solvency and capital adequacy requirements under the Act; ii. some RHBOs when faced with an adjustment payment would not be able to meet the capital adequacy requirements; iii. some RHBOs may be obliged to increase members' contributions to meet an adjustment, which could in turn affect membership numbers in such a way that those RHBOs may cease to be viable; and/or iv. if adjustments had to be made, it was possible that other RHBOs may need to bring forward rate increases, which would disaffect their members. [emphasis in original]

the first alleged procedural fairness issue - the failure to disclose the views of Mrs Ginnane set out in the Draft Management Report. 81 This part of the applicant's claim raises a not straightforward question as to the circumstances, if any, when something must be disclosed to the party affected by a decision, when the decision-maker disavows the relevance of that matter. 82 It is important to recognise that in approaching this question at least two important preliminary considerations need to be addressed. First, as here, if the decision-maker is a corporation and the organ of decision-making is comprised of more than one person, it is to the individuals comprising the organ that one must look to assess whether the matter is disavowed: Dunlop v Woollahra Municipal Council [1975] 2 NSWLR 446, 484-85; Parramatta City Council v Hale (1982) 47 LGRA 319, 335-36 and 348; and Telstra v Hurstville City Council (2000) 105 FCR 322, 381-82 per Wilcox J. Secondly, care must be taken to identify just what it is that is disavowed. It may be that it can be said perfectly accurately that a particular report or the oral presentation of a particular report was not taken into account and did not influence a person's mental processes in making the decision. It might be quite another enquiry as to whether the matters dealt with in that report, that is part or all of its subject matter was irrelevant to, or unconnected with, and so did not influence, the person's mental processes in making the decision. 83 The applicant here relied in particular on what Brennan J said in Kioa v West (1985) 159 CLR 550 at 629: Nevertheless in the ordinary case where no problem of confidentiality arises an opportunity should be given to deal with adverse information that is credible, relevant and significant to the decision to be made. It is not sufficient for the repository of the power to endeavour to shut information of that kind out of his mind and to reach a decision without reference to it. Information of that kind creates a real risk of prejudice, albeit subconscious, and it is unfair to deny a person whose interests are likely to be affected by the decision an opportunity to deal with the information. He will be neither consoled nor assured to be told that the prejudicial information was left out of account. [emphasis added] 84 This passage indicates that it is not sufficient to seek to shut out or disavow the relevance of material if it is "credible, relevant and significant" and if it is material of the kind that creates a real risk of prejudice, albeit subconscious. To a degree, as the last sentence of the passage shows, the necessity to disclose such material in order to accord procedural fairness is not based on answering a causal question as to whether the material did in fact play a part in influencing the decision, but rather on the appearance of a fair hearing and the maintenance of confidence in the administrative process and judicial review of it. 85 In Roderick v Australian & Overseas Telecommunications Corporation Ltd (1992) 39 FCR 134 at 145 Hill J (with whose reasons Keely J and O'Loughlin J agreed) identified the risk of prejudice in the decision-making process as the determinative factor. Where such was present, as Hill J said, "it will be no answer … to say that the Tribunal was of the opinion that it was not affected by the evidence." 86 In Johns v Release on Licence Board (1987) 9 NSWLR 103 the New South Wales Court of Appeal (Kirby P, Hope JA and Priestley JA) was concerned with circumstances in which the decision-making board had a summary of matters before them, which summary contained a factual mistake. The argument was that it was unlikely to have influenced the board. The document had been before the board on a prior occasion. The Court said (in its joint judgment): …The importance of the mistake in respect of Mr Madden [contained in the document] is not that it did influence the decision of the Board on this occasion. It is rather that it couldhave influenced that decision. … [emphasis in original] 87 However, that was a case in which it was a matter of speculation as to what weight, if any, was given to this consideration. 88 In Re Macquarie University; Ex parte Ong (1989) 17 NSWLR 113 Hope JA, writing as assessor to the Visitor to Macquarie University, and dealing with the situation where one member of the University Council took into account the contents of an undisclosed and adverse letter written by the Vice-Chancellor and where another document, a committee's report, was the most significant matter taken into account by the Council, said: … In my opinion even if it cannot be determined whether other Council members took the letter into account, it was a denial of natural justice not to have given Dr Ong an opportunity to answer the adverse material which it contained. 89 In Bromby v Offenders' Review Board (1990) 22 ALD 249, the New South Wales Court of Appeal (Kirby P, Clarke JA and Handley JA) dealt with a somewhat more complex and attenuated factual circumstance. There was no evidence that the board or any of its members had acted on the material in question. The evidence showed that two members of the board had files which contained material which had not been disclosed to the applicant's solicitor at a hearing that had been held. Kirby P approached the matter by applying Johns, supra and stated (at p 261) that "the concern of the law was not only with the actuality of procedural fairness but also with the manifest appearance that fairness has been observed." Clarke JA and Handley JA differed, not so much in point of principle, but because of a somewhat closer analysis of the facts. At p 266 they noted that the evidence required the applicant to submit that a single member could have had access to the material and could have relied on it and that dual possibility meant that the decision should not stand. The evidence was that the material was in the members' files, but the evidence did not disclose what use was made of the files in relation to the present decision or as a matter of practice. Clarke JA and Handley JA noted that there was no evidence that these files were consulted, as there was in Hall v Release on Licence Board (unreported, New South Wales Court of Appeal, 27 June 1989). The difference between Kirby P, on the one hand, and Clarke JA and Handley JA, on the other hand, was the former's reliance upon the appearance of matters, even in circumstances where the evidence did not disclose that the material had ever been seen or consulted by the decision-makers. Clarke JA and Handley JA threw no doubt upon the approach of Hope JA in Ex parte Ong, supra, where one of a number of Council members did take the matter into account, or of the Court of Appeal in Hall, supra, where there had been consultation of the material. However, they did say that a "theoretical possibility" that adverse and undisclosed material had been considered was not sufficient. 90 The decision in Bromby is not authority for the irrelevance of the appearance of fairness in the process. It is one strand underlying what Brennan J said in Kioa. It was a consideration discussed by Foster J in Youssef v Minister for Immigration and Ethnic Affairs (1987) 14 ALD 550 at 552 where his Honour said: Does the disavowal operate to remove this procedural fairness? Accepting as I do - and I stress that this was conceded by counsel for the applicant - that the disavowal is in every respect bona fide and that the delegate sought to act fairly towards the applicant, I am nevertheless left with a clear impression that the applicant has been denied natural justice in relation to the assertions made by and on behalf of the archbishop against him and his case. Whilst a decision-maker can, by an effort of will, exclude from his conscious deliberations the effect of material of this kind and even convince himself that he has totally ignored it, the potential of influence at a subconscious level remains, with the possibility of the creation of an adverse attitude towards the party at whom the material was directed. That this can and does occur is clearly recognised in the passaged cited from the judgment of Brennan J in Kioa. It is indeed a problem of which judicial decision-makers are acutely aware and against which they must constantly be on guard. In my view, in this case, the strength of the attack, especially having regard to the quarter from which it came, was such as almost inevitably to colour the decision-maker's subconscious attitude towards the applicant. The only way of achieving confidence in a fair decision was to raise the matter with him and provide an opportunity to him to respond to it. 91 See also Burchett J in Claro v Minister for Immigration, Local Government and Ethnic Affairs (1993) 119 ALR 342 at 353. 92 The relevance of the appearance of procedural fairness, though in a somewhat different context, was made plain by Barwick CJ in Stollery v Greyhound Racing Control Board (1972) 128 CLR 509 at 519. It was a consideration clearly underlying what Hill J said in Roderick, supra. 93 I do not read what Mason J said in Kioa, supra at p 588 in his Honour's differentiating of a lack of reference to material from a disavowal of material as a rejection of what Brennan J said at p 629. Nor do I read what McHugh J said in Minister for Immigration and Multicultural Affairs; Ex parte Miah (2001) 179 ALR 238 at [140] as limiting what Brennan J said at p 629 to matters that the repository of the power proposes to take into account. On the contrary, his Honour's citation of the part of the first sentence emboldened in the paragraph cited at [83] above indicates to me a measure of agreement by him with what appears in that paragraph, given the centrality of that first sentence to Brennan J's views at p 629. 94 From the above, I would extract the following legal principles relevant to the disposition of this case. First, if there is a real risk of prejudice in the decision-making process in not disclosing the substance of material before the decision-maker, bona fide disavowal of reliance on it will not be sufficient to warrant the non-disclosure of the material. The sufficiency of the existence of a real risk of prejudice reflects what the Court of Appeal said in Johns, supra that the enquiry is whether the material could have influenced the decision, not whether in fact it did influence it. Secondly, there will be such risk where the material is, in the particular circumstances, credible, relevant and significant to the decision. This is to be judged leaving aside the disavowal. Relevant to this assessment will be, amongst other things, the quality of the material and the risk of subconscious influence. Also relevant to this assessment will be the degree to which the fairness of the process is likely to be thrown into question on revelation of the existence of the material and that it was before the decision-maker. Thirdly, if one member of a decision-making organ takes the undisclosed material into account, that will suffice as a ground to set aside the decision if it is of the kind earlier described. Fourthly, as reflected by the use of the adjective "real" in the phrase "real risk of prejudice", a merely theoretical possibility of prejudice will not suffice. 95 With those principles in mind it is necessary to turn to the evidence. Mrs Ginnane gave evidence. She said that at the April Council meeting there was discussion "around the Council table", led by Mr Rogers, which resulted in a "general request of the Council as a whole" at the meeting for her to "do a review of NIB's management with a view to understanding how the error occurred in the first place". In her affidavit of 9 April 2001 Mrs Ginnane said at para 114: At that meeting, I was also requested to prepare an internal review of NIB's operations and performance, addressing the attributes required of a well run registered organisation, and to provide Council with a qualitative and quantitative analysis report at its next Meeting. 96 It is plain from this evidence that the genesis of the requested report was the Council seeking to understand how this error had arisen. 97 In her oral evidence in chief, Mrs Ginnane dealt with the Draft Management Report. She said that she prepared the document which was placed before the Council and that in her presence the Council decided the following in relation to what was to be done with it: They decided that at the end of the process we should seek an assurance that the reasons why the error occurred should have been addressed. 98 This last evidence was, I take it, intended to be her recollection of what was contemporaneously recorded in the minutes of the Council meeting of 5 May 2000 and referred to at [53] above, which Mrs Ginnane accepted was accurate. It is clear from these minutes that the Council accepted what was in the Draft Management Report for the purposes of deciding what they did on 5 May. 99 In her evidence, Mrs Ginnnane sought to express a separation of task between dealing with the January request, as had been done in April (see [42] above) and with any further submission, on the one hand, and dealing with the obtaining of assurances from the applicant that procedures were in place to ensure that the revealed error would not happen again, on the other hand. 100 Whilst, in one sense, there was this separateness of these matters, they were clearly related. The Draft Management Report and the request for it arose out of the errors in respect of which an adjustment had been requested. Also, the request for assurances was to abide, temporally, the "process… in relation to any application to correct or make an adjustment in relation to the error": (see Tp 58 ll 29-32.) 101 The Draft Management Report contained Mrs Ginnane's views and it was based in part on the January 2000 submission of the applicant and in part on her experience with the applicant. She agreed that it was expressed in strong terms and contained trenchant criticism of the applicant. Whilst there was some exchange between counsel and Mrs Ginnane about the matter in cross-examination in which Mrs Ginnane emphasised that the view that the error was the fault of the applicant was one which the applicant expressed and she only "accepted" this, I find that from April 2000 she formed her own view (drawn partly from what the applicant said in its submissions) that she regarded the error as having been caused by the applicant's management deficiencies. I think it an oversimplification for Mrs Ginnane to say that she was merely accepting the applicant's own views in its January submission in which it did not shrink from accepting some responsibility for what had happened. The views of Mrs Ginnane in the Draft Management Report went beyond adoption of some self-criticism of the applicant. They were blunt, trenchant and strongly expressed and the product of her own independent consideration, though taking into account the applicant's own expressed views. Mrs Ginnane's view which she expressed to the Council was that the error had been caused by the applicant's management deficiencies as reflected in the Draft Management Report. She said these management deficiencies were caused by the matters listed in the last six bullet points referred to in [52] above, matters which could only be described as damning criticism of the applicant's management (notwithstanding the preferred more anodyne descriptions of them by some of the witnesses in cross-examination). 102 Mrs Ginnane was cross-examined about the agenda paper for the 11 August 2000 meeting set out at [67] above. She indicated that the four bullet points in [67] above reflected her view and were consistent with the contents of the draft reasons, indeed she agreed that the latter put "in legal terms" (reflecting the assistance of solicitors in drafting them) the substance of these four points. 103 Mrs Ginnane gave evidence in re-examination that her views expressed in the Draft Management Report did not influence, and were not taken into account in her decision as to what to recommend to the Council. She said: "They [the management review reflected in the Draft Management Report and the decision on the recalculation] were separate issues". I will deal more fully with this evidence when I deal with the other witnesses on this topic. However, at this point, I would merely say that whilst I do not think Mrs Ginnane was intending to be in any way untruthful, I have grave doubts that the matters in that Draft Management Report exercised no influence on her decision to recommend as she did. The last two bullet points in the agenda paper clearly raised the question of good governance of other funds. Her strong views about the cause of the problem, that is the poor governance (in her view) of the applicant, were matters of objective conceptual relevance in the assessment as to whether to disrupt the affairs of other RHBOs by a recalculation. Whilst Mrs Ginnane may have thought this matter capable of excision as a matter to take into account, I have real difficulty in accepting that it played no part, at least at a subconscious level, in her coming to the recommendation she did. She was not a decision-maker, but she was the full-time CEO of a wholly part-time board. From the terms of the Draft Management Report and my assessment of her while giving evidence, I conclude that she was a person of independent mind who in this case reached clear and unequivocal views about the recommendation to the board and about the applicant's affairs. I think that there was a real risk that views of the applicant's management and of that as the cause of the error influenced her decision concerning what to recommend to the board. 104 Mrs Ginnane gave evidence in re-examination that the separateness of the issues referred to in [99] above was recognised by the board in discussions in which a decision was made to defer the sending of the letter to the applicant seeking reassurance about its management. The minutes of the meetings of June and July contain no reference to such a decision. However, the draft minutes contain a reference to the board agreeing to delay action to seeking assurances from the applicant until after the decision on readjustment was made. This reference was excised from the final minutes. However, there was some delay in sending the letter. It was not sent until 14 August 2000, three days after the decision. 105 I think much of the dispute about these matters is irrelevant. There were two things to do: (a) decide on the application; and (b) ask for assurance. Both were done. The board made up its mind about (b) on 5 May 2000 upon receiving and considering Mrs Ginnane's strongly worded and trenchant criticisms in the Draft Management Report. The letter was sent, on 14 August, as the board requested in May. The views of Mrs Ginnane in the Draft Management Report were not provisional or conditional. They were not given to the board as such. The board received them, considered them and decided to ask for assurance. The views were given to the Board in the context of explaining the error of the applicant in respect of which the adjustment was claimed. They were views which laid the cause and the blame for the error in the plainest of terms at the feet of management of the applicant. To the extent that an explanation for how the error occurred was relevant to the decision on readjustment, Mrs Ginnane's views , objectively speaking, were central. 106 Mr Graham Rogers, a member of the Council, gave evidence. He said in para 8 of his affidavit: In forming my view that the Applicant was not entitled to reinsurance adjustments, I did not take into account the [Draft Management Report], nor did I take into account any verbal presentation of that report made at the Council meeting of 5 May 2000, at which I was also present. 107 He was cross-examined. He accepted that the four matters identified in the briefing paper for the August board meeting ([67] above) were some of the reasons for rejecting the claim. He too was of the view that the reasons were the "legal form" of the matters in the board paper. Mr Rogers accepted that one matter which he took into account was that the error was one which was not beyond the applicant's control. This reflected what was in the reasons at para 3.3.17 ([72] above). However, Mr Rogers rejected the proposition that "poor management" of the applicant was taken into account. 108 Mr Rogers recognised the strong criticism of the applicant's board in Mrs Ginnane's draft report. He accepted that he had not forgotten it at the time of the decision. He accepted that in May 2000 the board acted on the contents of the Draft Management Report, having accepted those contents. He recognised a clear overlap between the Draft Management Report and the explanation in it for the error and the request for the assurance sent on 14 August. Both the error and the need for assurance were explained by the poor management, at least in the opinion of Mrs Ginnane. He said that though the fact that the error was not beyond the applicant's control was a factor in reaching his decision, the conclusions of Mrs Ginnane as to the poor management of the applicant were not. 109 Ms McDonald, a Council member, gave evidence. She stated in her affidavit: 8. On 11 August 2000, in forming my view that the Applicant was not entitled to reinsurance adjustments, I did not take into account the [Draft Management Report]. The reasons for my decision, and the matters on which it was based, are set out in exhibit GEG-45 to the affidavit of Gayle Elizabeth Ginnane sworn on 9 April 2001 [the terms of the decision sent to the applicant on 11 August 2000]. I did not take into account any verbal presentation of that report made at the Council meeting of 5 May 2000, at which I was also present. 110 Ms McDonald said that prior to the meeting she had read her board papers, but had not made up her mind about what to decide about the applicant's request. At the meeting she did form the view that the request should be rejected. She was taken to the four bullet points listed in the agenda paper ([67] above). Two of the matters she did recall taking into account were the matters in the third and fourth bullet points. These encompassed the good governance and management of other funds which had budgeted in good faith on the reported reinsurance amounts. She agreed that one matter she took into account was that the error had been caused by matters which were not beyond the control of the applicant. 111 It was also clear from her evidence that the fault of the applicant for the error was discussed at the meeting of 11 August. As far as she was concerned, her reasoning process was that she took into account (as three major matters) the nature of the error, how it arose and the quantum of it. 112 The trickiness of the relationship between the criticisms of Mrs Ginnane in the Draft Management Report and the August decision is reflected in the following evidence of Ms McDonald in cross-examination. I should say at this point that I accept her evidence completely: Q: Could I ask you this, Ms McDonald: as at August 2000 when you participated in the decision to reject NIBs claim, you were of the view, were you not, that NIB's management was defective in so far as it had led to the error, the subject of the application? A: In reaching my decision in August, I considered a range of factors. One was the governance and management in relation to the particular matter, re-insurance that was before us. Q: And when you speak of the governance [and] management you are speaking of the governance and management of NIB, are you not? A: Yes. Q: And your view at that time of the governance and management of NIB, so far as it related to the error, was that governance and management was deficient? A: It was not as strong as it should have been. Q: And what I suggest to you, Ms McDonald, is that a factor contributing to that view of yours was the strong criticism that had been made of NIBs management in the draft report that was tabled in May 2000? A: I don't agree with that. I don't believe I took that report into account at all. It was on the facts discussed at the meeting of August 2000. Q: Can I put this to you, you may not have taken into account the report as such, but you could not rule out the possibility that you remained influenced by the strong criticisms that had been made of NIB in that report? A: Look, I don't recollect taking that report or its contents into account at all. I made the decision on the facts that were presented at that August Board meeting, from the material that we received beforehand and in the discussion that went on at that Board meeting. Q: One of the matters being discussed was the governance and management of NIB, was it not? A: In relation to the historical matter of the re-insurance I can't recollect what was discussed in terms of particular issues of governance. Q: But as a topic it was discussed, was it not? A: My recollection is that it was. 113 That evidence was both sensible and compelling. The governance and management of the applicant was discussed at the 11 August meeting. There was a perceived deficiency in its governance and management. Those views had already been tendered to and accepted by the Council in May. For her, how the error arose and the governance and management of the applicant in relation to the reinsurance were clearly relevant in deciding whether a financial readjustment, consequent on an error, should be made in the best interests of RHBOs generally and the good administration of the Fund. Whilst the Draft Management Report was not before the board, what had been imparted to Ms McDonald, and what she clearly and frankly stated that she took into account, were the reasons for the error which encompassed the quality (or defective quality) of the governance and management of the applicant in relation to the error. I find that these matters were discussed at the meeting and that they formed important considerations or factors in Ms McDonald coming to the view she did. Also, I think that it was both logical and sensible for her to give this relevance or importance to those matters in making her decision. The 'good administration' of the Fund is an expression plainly wide enough to make relevant as a consideration in a decision such as this whether or not sloppy management should affect the question of a readjustment, with consequent disruption to the operation of the Fund and to the other participating commercial entities. 114 Mr Richardson, the Commissioner of the Council, gave evidence. In his affidavit of 19 June 2001 at para 7 he said the following: In making this decision, I state that Council did not take into account the [Draft Management Report], nor did Council take into account any verbal presentation of that report made at the Council meeting of 5 May 2000. 115 After debate, I ruled that I would accept this evidence, but only as evidence of his own decision-making process. 116 Mr Richardson was asked about the Draft Management Report. He did not accept that the board acted on it in May. Plainly, it did, to the degree identified in the May minutes ([53] above). He did not recall the topic of the applicant's management coming up again. I accept Ms McDonald's evidence and find that that topic was discussed during, at least, the August meeting. Mr Richardson disagreed with the proposition that relevant to the application for adjustment decided on 11 August was the quality of the applicant's management, though he agreed that one reason for rejecting the application was that the error was not beyond the applicant's control, which he agreed involved a qualitative assessment on his part of the applicant's management. 117 Mr Richardson agreed that the four bullet points in the August briefing paper ([67] above) were considerations taken into account, but he said that his recollection was that most of the discussion concerned the draft statement of reasons (see generally [72] above) and whether the board agreed with that decision and reasons. To the extent that this evidence might be seen to conflict with what Ms McDonald said about the governance and management of the applicant being discussed at this meeting, I prefer the evidence of Ms McDonald. In any event, Mr Richardson saw no inconsistency between the agenda paper and the draft reasons. 118 The two other members of the Council who participated in the decision of the Council on 11 August 2000, Ms McNee and Professor Stoelwinder, did not give evidence. This was explained in the evidence as brought about by a combination of inconvenience and lack of ability. Ms McNee is seriously ill and has been diagnosed as such from July 2001. I am satisfied that, given the brief description of her condition, obtaining assistance from her since July and not having her available for cross-examination has been explained. Professor Stoelwinder has been incommunicado while on holidays overseas for two months. He arrived back in the country just before the case began. No attempt was made to put his evidence forward before August 2001. Nor was any attempt made to put Ms McNee's evidence forward prior to July 2001. I note that the affidavit evidence of Mrs Ginnane and Mr Richardson (the CEO and Commissioner) was filed prior to July 2001. However, that of Ms McDonald and Mr Rogers was filed only shortly prior to the hearing. Whilst there is no clear evidence of it, I infer that a later decision was probably made to call all members as well as the CEO and Commissioner. In any event, given the conclusions that I have come to, it is not necessary to examine whether I should, in the circumstances, rely upon the operation of Jones v Dunkel (1959) 101 CLR 298. 119 On the basis of the principles to which I have referred ([83] to [94] above) the substance of the contents of the Draft Management Report should have been disclosed to the applicant in reasonable time for it to consider the views and make an appropriate response. Not to do so denied the applicant procedural fairness in a substantial manner. 120 I have already sufficiently described the contents of the Draft Management Report. They were the views, not said to be provisional, of the CEO of the Council to the effect that the error had been caused by deficiencies in governance and management of the applicant, which views could only be described as damning. 121 The board read and considered those views and acted on them in resolving as it did in May to seek assurances of the applicant. Whilst there was some difference among those cross-examined as to whether they recalled having the Draft Management Report to mind on 11 August 2000, the circumstances were far removed from that described by Clarke JA and Handley JA in Bromby, supra. The Draft Management Report had been requested by the board, in the context raised by the errors the subject of the readjustment request and had been read, digested and acted upon. 122 The Draft Management Report dealt in detail with the cause of the error. The fact that error was not beyond the applicant's control was an avowed and express consideration: para 3.3.17 of the reasons ([72] above). This aspect of the reasons identifies the question of how the error arose, to a degree. The respondent and the witnesses sought to draw a clear boundary between what was expressed in para 3.3.17 and a fuller understanding of the views put to the board of the applicant's "control" over the error in the Draft Management Report. 123 For at least one board member, Ms McDonald, how the error arose, somewhat more generally, was central to the decision. This was in the context of the governance and management of the applicant being discussed at the meeting of 11 August 2000. Whilst I accept Ms McDonald's evidence that she did not recall taking the Draft Management Report or its contents into account, she most definitely considered the discussion at the meeting about the governance and management of the applicant. In the circumstances, I find that that discussion must have involved and reflected the matters, or at least some of them, raised in the Draft Management Report. She took that discussion into account in her decision, one important reason for which was how the error arose. Only three documents, all of which were before the board, dealt with that question: the 31 January submission, the 6 July submission and the Draft Management Report. In this way the matters dealt with in the Draft Management Report directly influenced at least one member of the Council, Ms McDonald. 124 I also think it highly likely that the matter which affected Ms McDonald influenced all other members of the board. The board submission plainly raised the question of the good governance of other RHBOs. In the context of a discussion at the meeting of the deficient governance of the applicant and the avowed taking into account that the error was not beyond the applicant's control, I find the disavowals of relevance of the Draft Management Report and its contents by Mr Richardson uncompelling. Mr Richardson's evidence set out at [116] above can only sensibly reconciled by concluding that, to a degree, he did take into account a qualitative assessment of the applicant's management. 125 Mr Graham Rogers seems to have been mainly influenced by the effect of the recalculation on other funds. He did say that the control of the applicant over the error was a factor, but that Mrs Ginnane's conclusions as to the poor management of the applicant were not. Whilst I accept him as a truthful witness, for the reasons I have otherwise expressed about the objective relevance and significance of Mrs Ginnane's views of the management of the applicant to the subject matters of the discussion and the fact that the topic of the deficiency of the applicant's management was discussed at the meeting, I treat his evidence with considerable caution. I conclude that it is likely that the views of Mrs Ginnane had an influence on his decision. For the same reasons I conclude that it is likely that the views of Mrs Ginnane had an influence on the decisions of Ms McNee and Professor Stoelwinder. Also, in relation to these latter two, the commonsense approach of Ms McDonald, and the importance to her of how the error arose, reinforces my conclusion in relation to them. 126 I am made more confident in these conclusions by the plainly credible, relevant and significant nature of the information. They were the views of the CEO, put to the board about the cause of the errors the very subject matters of decision. The circumstance of the errors arising "not outside NIB's control" was one reason for the decision and the related or extended question of the degree of fault involved was plainly a consideration within the universe of matters open to the decision-makers in considering the matters in section 3A.1(3)(b). If a large error, which could give rise to a significant disruption to the financial affairs of all RHBOs and which could destabilise the operation of the Fund could be shown to have occurred through events entirely beyond the control of the mistake-maker (eg a computer virus, which could not be detected by the most advanced anti-virus programmes) that seems to me to place an applicant for readjustment in a stronger position in an enquiry under para 3A.1(3)(b) than would be an applicant whose flagrantly neglectful business systems had caused the error. (I am not by this making any finding about the applicant or its management.) An analysis of how the error arose may not be a consideration mandated by legislation (Minister for Aboriginal Affairs v Peko Wallsend Ltd (1986) 162 CLR 24),but it is a consideration within the universe of relevant matters in the sense discussed by Deane J in Sean Investments Pty Ltd v MacKellar (1981) 38 ALR 363, 374-76. 127 For the above reasons, I find that there was a real risk that the undisclosed material being the Draft Management Report or, perhaps more accurately, the views of the CEO contained therein, influenced the decision of the Council. It is only sufficient that I find this reality of risk. If it were necessary, I would be prepared to find, on the basis of Ms McDonald's evidence and the other matters which I have discussed above, that the views of Ms Ginnane are likely to have had an influence on the decision. As I said earlier, the disavowals (all drafted in the affidavits in similar terms) are less than compelling when one recognises, in particular, the discussion at the meeting of 11 August of the governance and management of the applicant and the common sense of Ms McDonald's evidence as to the relevance to her of how the mistake arose and the relationship of that to the question of the governance and management of the applicant, and in circumstances where a clearly related, though attenuated, question was avowedly taken into account - the control of the applicant over the error. 128 The respondent emphasised that the Draft Management Report and the consideration of it were part of the wider prudential functions of the Council. As I have earlier discussed, it is undoubted that these functions, wider than merely the operation of the Fund, existed. However, the Draft Management Report was called for by the Council in seeking to understand how these errors arose. I do not think that its relationship to the wider functions in any way lessens what I have earlier said about its relevance to the decision in question. Also, I do not think that the fact that other steps were being or were to be undertaken, such as the assurances from the applicant or the wider enquiry concerning all RHBOs, in any way lessens the relevance of the Draft Management Report to the decision in question. 129 It was said that the Draft Management Report was a draft. It was so entitled, but it contained Mrs Ginnane's then views, which were not said to be provisional. They were views she proffered to the Council. The Council received them and, to a degree, acted on them. 130 It was perfectly appropriate for Mrs Ginnane to prepare the document, especially if the wider responsibilities of the Council called for it. However, that does not lessen the relevance of it, in the circumstances, to the decision in question. 131 Thus, in my view, the applicant was denied procedural fairness in the making of the decision the subject of review.

the second alleged procedural fairness issue - the failure to disclose, and provide an opportunity to deal with, the views of the Council that a further calculation would adversely effect the capacity of other RHBOs to comply with solvency requirements and other requirements of the NH Act. 132 The critical findings identified by the applicant in this regard were contained in paras 3.3.12 and 3.3.13 of the reasons ([72] above) and were as follows: (i) if an adjustment were made, the consequential liability would appear immediately on the balance sheet of all other RHBOs and would affect their capacity to comply with present solvency and capital adequacy requirements under the Act (paragraph 3.3.12 of the Reasons); (ii) in the Respondent's view, "it is at the very least possible that some RHBOs will not be able to manage a readjustment of their contribution to the Fund without a breach of either the current standards or the proposed solvency and adequacy standards even though an extended adjustment period is set" (paragraph 3.3.13) (iii) many RHBOs would be able to absorb such an adjustment, "but it cannot be ruled out that some RHBOs when faced with an adjustment payment will not be able to meet the capital adequacy requirements" (paragraph 3.3.13) (iv) some RHBOs may be obliged to increase members' contributions to meet the adjustment and this "could affect membership numbers in such a way that they may cease to be viable" (paragraph 3.3.13) and (v) based on the Respondent's experience of the industry, it concluded that "an extended settlement period may not be sufficient to avoid difficulties for other RHBOs that would be affected by recalculation of Fund contributions" (paragraph 3.3.13). 133 It is not in contest that these were important matters taken into account by the respondent. The respondent's submissions were that the question as to whether or not there was procedural fairness depends upon a common sense comparison between the applicant's submission of 6 July (and also, perhaps, the submissions of 31 January) and the reasons. I agree with that approach. If, in substance, the reasons dealt with questions beyond the reach of the submissions then, unless it can be said that the applicant should have been expected to deal with such matters in any event, the respondent should have given the applicant an opportunity to be heard on what were new matters. 134 It is beyond question that the applicant should have known that the recalculation sought would, if acceded to, have a financial impact on other RHBOs. That much flows from there being a zero sum calculation. However that matter does not necessarily extend to appreciating facts, if they then presently existed, of grave specific consequences for specific RHBOs in terms of the solvency and prudential requirements under the NH Act. That, it seems to me, was not something that the applicant should have been expected to understand or to be able to deal with. It was not something broached by the applicant in its submissions. 135 Taking the five points identified by the applicant (para [132] above), the respondent says about the first that it is "a matter of accounting effect of the adjustment. The applicant has not challenged the accuracy of that effect. This was a matter which the applicant had the opportunity to grapple with". The accounting effect appears to have been a matter of some concern to the respondent. It may or may not be correct to say that whatever adjusting calculation was made and however staggered the regime of payments was made under section 3A.3, the liability had to appear as one figure in full in the balance sheet of the particular RHBO. The point is that the applicant was not given a chance to deal with the specifics of the matter. Taken alone it would be, perhaps of marginal consequence. However it bears an importance in conjunction with the other points. 136 As to the second, third and fourth points, these are said by the respondent to be expressed only in terms of possibilities: "it is at the very least possible", "it cannot be ruled out", "some RHBOs may be obliged to increase members' contributions". These are not, as submitted, merely matters of common sense. The real and relevant likelihood or even possibility that this error if adjusted would make one or more RHBO insolvent by the standards of the NH Act or leave it or them without adequate asset cover was not a matter which was or should have been evident. It was plainly important. The applicant should have been given an opportunity to be heard about it. 137 It is wrong to say that because the applicant knew that a readjustment would have some effect on the finances and balance sheets of other RHBOs the respondent did not have to give the applicant an opportunity to be heard about specific effects of such grave matters. At the very least the applicant should have been given an opportunity to put matters to the respondent concerning the question as to whether, in all the circumstances, the bringing of other RHBOs to a correct position, being a matter which would affect their solvency or prudential position adversely, should be a matter which the applicant's membership should pay for or whether it should not be a matter taken up with those RHBOs. 138 It was put that all that was being said by the respondent in the second and fifth points identified earlier, in focussing on the question of the failure by some RHBOs to meet solvency and prudential standards and on the inability of staggered payments to ameliorate those difficulties, was that the respondent simply did not think adjustment was an appropriate action and was not convinced of the applicant's case on this point. I have difficulty with this submission. The applicant did not have a case on the point as to whether or not the adjustment would affect the solvency of other RHBOs. In my view, it is clear that the respondent was not merely dealing with submissions of the applicant. It was dealing with a separate and distinct point of some gravity which the applicant had no opportunity to meet. 139 It is plain that the applicant was aware that there could be an impact on contribution rates, particularly in the light of the proposed capital adequacy and solvency standards and that these matters could affect the members of other funds and the competitiveness of other funds. However, the applicant was not given an opportunity to deal with the reality of the specifics of the matters dealt with by the respondent, which raise the real question, not dealt with by the applicant, of the real possibility of the failure of funds to meet solvency and capital adequacy requirements and how that should be dealt with in the context of the working through of the consequences of a genuine mistake. 140 Some attempt was made, especially in the evidence, to emphasise the confidentiality of financial information provided by and concerning other RHBOs. Mrs Ginnane said in her affidavit that s 135A of the NH Act prohibited the Council and her discussing the financial affairs of one RHBO with another, unless such information was published under para 82G(m). This was said to be a result of para 135A(4)(a). Section 135A does require the maintenance of secrecy, but subs 135A(1) prohibits the divulging of information "except in the performance of duties, or in the exercise of powers or functions, under this Act". Paragraph 135A(4)(a) does not have the far-reaching consequences referred to by Mrs Ginnane. The Council could and should have raised matters concerning other RHBOs with the applicant. Questions of confidentiality may well have arisen in relation to the form and content of any such communication. However, it is not a legitimate basis for not having allowed the applicant an opportunity to deal with the specific matters referred to in [132] above. 141 In my view, the applicant was denied procedural fairness in this respect as well.

the third alleged procedural fairness issue - the failure to make appropriate enquiries with other RHBOs and merely relying on the experience of their counsel. 142 The members of the Council brought a variety of experience to the Council. Also, Mrs Ginnane was someone of considerable experience in the public service. She was, prior to her appointment as CEO, the Director, Industry Reform Section of the Commonwealth Department of Human Services and Health. Mr Richardson, the Commissioner, was, prior to his appointment to the Council, the managing director of the then third largest health insurer in Australia, National Mutual Health Insurance Fund and was responsible for the running of that fund. He also had extensive experience and background in the Insurance industry, having spent 30 years with the National Mutual Group. Ms McDonald was an accountant, auditor and partner in a large accounting firm. She was a member of the National Membership Committee of the Institute of Chartered Accountants and was a director of a hospital. She has had 20 years experience in the field of financial advisory services, audit and financial investigations. Mr Graham Rogers was an actuary and a board member of the Institute of Actuaries. He has held numerous directorships and appointments in investment, management and insurance companies. Professor Stoelwinder was the Chief Executive Officer of Southern Health Care Network, a company which owns and runs a private hospital, and had relevant management experience in the health industry. He has past board appointments including Southern Health Care Network, and the Australian Hospitals Association. Ms McNee was a legal practitioner and the president of the Administrative Review Council. Her previous experience included being the managing partner of a large law firm for five years and also their national co-ordination partner. Until early 2000 she was the Group Secretary and General Counsel for Westpac. 143 As I have earlier described, the Council, in particular, no doubt, through the full-time management, including the CEO, obtains and obtained financial reports and financial information from RHBOs in the fulfilment of its various functions and is obliged to evaluate that material for a variety of reasons. 144 Given the experience of the individual members of the Council and of Mrs Ginnane, I see no obligation in law upon the Council to make requests of RHBOs for input about the specific effect of any adjustment on them, rather than using the accumulated experience and knowledge of the industry which this body of people in their position no doubt had. If there were no basis for the Council rationally coming to the view that it could act on any view it might hold about the industry, then that would be another thing. However, given the Council's functions and the backgrounds and experience of the Council members I see no reason why they could not come to the views they did without asking RHBOs for specific information about those matters. 145 Therefore, in my view this separate way of putting the natural justice argument fails. 146 I see nothing in Tickner v Bropho (1993) 40 FCR 183 at 197-98; Videto v Minister for Immigration and Ethnic Affairs (1985) 69 ALR 342 at 353; Minister for Immigration and Ethnic Affairs v Teoh (1995) 183 CLR 273, 290 and 302-3; and Prasad v Minister for Immigration and Ethnic Affairs (1985) 6 FCR 155 at 175 which would require the Council to have acted differently in the way claimed by the applicant. 147 The submission was also put that the findings by the Council in the paragraphs of their reasons to which I have referred as to the effect of an adjustment on other RHBOs were unsupported by any probative evidence or other material. This is put forward as an aspect of procedural fairness, or, alternatively an error of law in its own right. 148 I see no basis for the propositions that the conclusions of the Council in this respect were without probative material to support them. I have referred to the experience of the members. I have also outlined the width and depth of information which the Council and its management receive in the ordinary course of conducting the affairs of the Council and performing its functions as laid out in the NH Act. The evidence did not disclose any lack of probative material. This submission is in my view without substance. the taking into account of irrelevant considerations: para 5(1)(e) of the AD(JR) Act 149 The applicant complained of various matters, characterised as irrelevant considerations, being taken into account. The first which was relied upon was that the Council took into account that a precedent would be set by allowing an adjustment after the period considered by the Minister's determination and the signal that this would send to the industry. This matter of course was contained in the board paper referred to in [67] above. 150 As can be seen from the evidence of some of the witnesses, some Council members viewed the reasons drafted by Mrs Ginnane and Phillips Fox as the legal embodiment of what was in the briefing paper. I think one needs to be careful about taking this evidence too far. However, it is true that a number of the Council members took into account as relevant considerations, the matters, including this one, set out in the briefing paper. 151 The relevant principles made provision for adjustment within a defined period and outside a defined period, in the latter case in circumstances where the Council was satisfied of the matters in para 3A.1(3). Thus, the binding considerations which the Council was to take into account included the possibility of adjustment outside the initial periods provided for by para 3A.1(2), where the Council was satisfied of the matters in para 3A.1(3). It seems to me that there is some force in the applicant's submission that to view granting an adjustment as setting a precedent that would send a signal to the industry is to take into account a matter inconsistent with the structure of the principles and to raise certainty or consistency to a level higher than permitted. 152 It is undoubted that the Council was entitled to give significant weight to a consideration that RHBOs should generally be entitled to assume that calculations once made are not merely provisional. It seems to me clearly open to view certainty and consistency as a desirable policy objective in the operation of the Fund. However, if the Council were to decide a matter by reference to how a matter might look to other RHBOs so as to discourage them from making applications for adjustment, which could otherwise properly be made within para 3A.1(3), that, it seems to me, would be adopting a rule or policy inconsistent with the binding structure and terms of the principles. 153 However, on balance, while I am troubled by some of the language, I conclude that the Council did not undertake a course inconsistent with the written principles, nor did it adopt a policy or rule fettering its own discretion or its own state of satisfaction. The language was amenable to describe the need for certainty as a desirable policy. On balance, I think no more than that was being said. 154 The next irrelevant consideration said to be taken into account was the circumstance of the error not being beyond the applicant's control. Reference was made to paragraph 3.3.17 of the statement of reasons (see [72] above). I have earlier indicated my view that the approach of Ms McDonald, who clearly took the source of the error into account, was appropriate. It seems to me that how the error arose and the applicant's control or lack of control over the cause of the error were matters plainly within the universe of considerations open to the Council to take into account, but not necessarily mandated by the NH Act or the principles to be taken into account: Sean Investments, supra. This attack on the decision fails. the failure properly to take into account relevant considerations: para 5(1)(e) of the (ADJR) Act 155 The applicant identified a number of matters which were said not to have been taken into account. They included matters which one can identify as having been touched upon by the Council. However, it was said that there was no "proper, genuine and realistic consideration" of certain factors. Reference was made to Khan v Minister for Immigration and Ethnic Affairs (1987) 14 ALD 291; Turner v Minister for Immigration and Ethnic Affairs (1987) 35 ALR 388, 392; Teoh v The Minister for Immigration Local Government and Ethnic Affairs (1994) 49 FCR 409, 414; Flentjar v Repatriation Commission (1997) 48 ALD 1 and Tobacco Institute of Australia v NH&MRC (1996) 71 FCR 265 at 281. (No debate took place before me as to the proper scope of this requirement: cf Bruce v Cole (1998) 45 NSWLR 163, 185 and, in another statutory context, Minister for Immigration and Multicultural Affairs v Anthonypillai [2001] FCA 274.) 156 The first of these matters said not have been taken into account was the respondent's power to spread adjustment payments (see [59] above). It was said that this was so outweighed by the Council's reliance upon the effect on other RHBOs as to have not been truly and genuinely taken into account. I disagree. The matter was dealt with in the context of the effect on other RHBOs. The vice was in the failure to accord natural justice. I see no basis for concluding that real consideration was not given to the question of spreading the adjustment payments. 157 The next matter said not to have been taken into account was the lack of genuine and real consideration given to the adverse effects on the applicant and its members. The respondent Council referred to the matter in its statement of reasons. The weight to be given to this matter was a matter for the Council. I see no legal error in the way the matter was dealt with. The Council indicated that it took into account all the submissions of the applicant. I do not conclude that that statement was not an accurate reflection of what the Council did. In these circumstances I think the complaint relates to one of the weight given to matters and to the result, rather than to the process. 158 The next complaint was that no real and genuine consideration was given to current Ministerial principles. In this complaint the applicant sought to characterise what the Council did really as a form of analysis as to whether there were "exceptional circumstances". Paragraph 1.1.6 of the statement of reasons expressly stated that the decision was based on the correct written principles. I do not think that the substance of the approach of the Council is one which betrays a failure to heed the terms of the then current written principles. This complaint does not form the basis of any legitimate attack upon the Council's decision. the making of the decision involving the exercise of a discretionary power in accordance with a rule or policy without regard to the merits of a particular case: para 5(1)(e) of the AD(JR) Act. 159 It was said that there was an over-rigid or unlawful policy adopted by the Council to the effect that further calculations outside the primary period should invariably be refused. If such a policy had been adopted then it would, without doubt, have been contrary to the written principles and an unlawful fetter on the discretion contained within those principles. 160 However, as I have earlier indicated, while I am troubled by some of the language used, in particular in the briefing paper produced for the Council, I do not conclude that such an unlawful policy was adopted, nor do I conclude that genuine and realistic consideration was not given to the merits of the applicant's case. I do not think that I need traverse all the submissions of the applicant in this respect. I am not persuaded that in the light of the terms of the reasons and of the briefing paper to the board, and considering the evidence, that the Council did other than place significant weight upon the need for certainty and consistency. error of law: para 5(1)(f) of the AD(JR) Act 161 Various matters were raised. Some of them relied on matters already mentioned and reiterated them under another legal framework. 162 The first matter identified was the failure to make appropriate enquiries of RHBOs. This has been dealt with earlier in the section of these reasons on natural justice (see para [142]-[148] above). For the same reasons it fails. 163 The next matter was the lack of probative evidence said to underpin the conclusions, in particular those conclusions about the effect on other RHBOs. I have dealt with this earlier. This attack fails. 164 The next heading under "Error of Law" was what was said to be the misconstruction of Ministerial principles. This was another way of putting the argument that when one examines the reasons and the briefing paper one sees an approach based upon extraordinary circumstances rather than the matters in para 3A.1(3)(b) and an inflexible policy not to make adjustments outside the primary period. I have dealt with both these matters earlier and I reject them. 165 One matter which needs to be dealt with are the submissions founded on the reference in the briefing paper referred to at [67] above, in the second bullet point, to the effect that the Council is "maintaining its consistency in acting in accordance with the Minister's Determination". It was said that this betrayed the fact that Mrs Ginnane was urging the Council to move under the Minister's determination relevant at the time of the Federal Court case before Goldberg J, which judgment was appealed to the Full Court. Those written principles, of course, were the earlier and outdated written principles. I do not think that the reference is to be so explained. There was in this case, until very shortly prior to the hearing of this matter, a live issue as to whether recovery of moneys could be made outside the relevant written principles, under the general law. I do not think that Mrs Ginnane was urging the Council to use the out of date written principles in this paragraph; rather, I think she was indicating consistency of the Council in dealing with the matter under the written principles and under no other legal framework. I do not take her to have been referring to one particular, and out of date, set of principles. This attack fails. the decision was so unreasonable that no reasonable person could have made it: para 5(1)(e) of the AD(JR) Act 166 In the light of all the evidence, I do not think that it is arguable that the decision was so unreasonable that no reasonable person could have made it. The choice to refuse the adjustment was plainly open to the Council. This attack has no merit.

conclusion 167 In the light of the above reasons, my view is that the decision of the Council made on 11 August 2000 was and is flawed by reason of the failure of the Council to accord the applicant procedural fairness in connection with (a) the Draft Management Report and (b) the effect of any adjustment on the compliance by certain RHBOs with solvency and prudential requirements under the NH Act. 168 In these circumstances my view is that the decision should be set aside and remitted to the Council for reconsideration and re-determination. 169 The parties requested me to hand down my reasons prior to making final orders. In the light of this the draft orders which I would propose be made are as follows: 1. that the questions set out in Part A of the Further Amended Application filed on 26 April 2001 and in paragraphs 1 to 28 and 40 to 47 of the Further Amended Statement of Claim be heard and decided before any further trial in the proceedings; 2. that the decision of the Private Health Insurance Administration Council made on 11 August 2000 to refuse to accede to the application of NIB Health Funds Limited for a readjustment of rights and obligations under Part 3A of the Health Benefits Reinsurance (Trust Fund Principles) Determination 1998 be set aside; 3. that the matter be remitted to the Council for further consideration and determination according to law; and 4. that the respondent pay the applicant's costs. 170 The parties may wish to put submissions as to the form of these orders consistent with these reasons. To this end I propose to make the following orders: 1. that within 7 days the applicant file and serve a draft copy of orders which it proposes in accordance with these reasons for judgment; and 2. that proceedings be stood over to a date to be fixed for the making of orders and for any argument concerning the form of those orders.

I certify that the preceding one hundred and seventy (170) numbered paragraphs are a true copy of the Reasons for Judgment herein of the Honourable Justice Allsop.

Associate: Dated: 31 January 2002 Counsel for the Applicant: Mr A Robertson SC with Dr J Griffiths SC

Solicitor for the Applicant: Sparke Helmore, Newcastle

Counsel for the Respondent: Mr R Tracey QC with Mr T Ginnane

Solicitor for the Respondent: Phillips Fox, Canberra

Date of Hearing: 29, 30 October 2001; date of last submissions 19 November 2001